Iowa farmers, lenders warily eye next season

If trade talks linger, 2019 ag economy faces troubles

Workers transport imported soybeans in April at a port in Nantong, China. China typically imports more than $12 billion annually in U.S.-grown soybeans, about a fourth of that total from Iowa. But with China now in a trade war with the United States, the price of soybeans has dropped to be less than the cost of producing them. (Reuters photo)Chris Hart, ISU economist (Photo from Iowa State University)

DES MOINES — Pat Swanson and her husband have some decisions to make soon, and one could be to plant fewer soybeans next year.

As soybean prices — among those for other crops and livestock — remain depressed in large part to ongoing federal trade negotiations, many Iowa farmers and their lenders are not only concerned about the bottom-line impact on this year’s harvest, they also are approaching the 2019 season with hesitation.

With sustained low prices — soybeans late last week were at $8.21 per bushel, well below the roughly $10 cost of production — and a strong yield predicted for this year, Swanson said it may make sense for soybean producers to scale back next year.

“We’re certainly going to be looking at analyzing, over the winter, our input costs and how well things went as far as profitability, and we’ll be making those decisions soon after the harvest,” said Swanson, who farms with her husband on their sixth-generation family farm near Ottumwa in southeast Iowa. “We have to make a profit to stay in business.”

Banks also are growing more cautious, said Swanson, who in addition to farming runs a crop insurance agency and is involved with the Iowa Soybean Association and the federal agriculture department’s Farm Service Agency.

Swanson said some banks are asking farmers for extra layers of insurance, including indemnity.

“That’s how nervous they’re getting. They want their names on the checks as well to make sure they get paid,” Swanson said. “I have a handful of farmers that are in that situation. ... If they’ve been struggling the last two years, this is going to be a tough one for them to get through.”

Federal trade negotiations with myriad countries, started by President Donald Trump’s administration, have sparked a budding trade war in which countries have levied additional tariffs — taxes on traded products — including soybeans and pork, two of Iowa’s most-exported products.

That trade war has contributed to falling prices, putting Iowa farmers at risk of financial harm.

Trump says the negotiations are necessary in order to remake international trade deals that he says have been unfair to the United States. Many Iowa farmers have stated their support for the president’s mission, even as it has hurt their bottom line, because their hope is the renegotiated deals will be better for them in the long-term.

But in the meantime, many Iowa farmers are trying to figure out how to keep their operation profitable both this year and next, especially since trade negotiations with China — one of Iowa’s biggest trading partners — have not yet produced much optimism. As that cloud of uncertainty looms, farmers must decide whether they need to scale back their operations next year.

“It’s definitely the case that farmers are looking at lower market prices because of the trade uncertainty and that has them adjusting,” said Chart Hart, an agricultural economist at Iowa State University. “It’s influencing not only how they are going to sell their products ... but it’s also going to influence producers’ decisions as they look at what they’re going to produce over the next year, year-and-a-half.”

Bankers who provide loans to farmers must decide to what extent they are comfortable extending ag loans at a time farmers are being financially pinched.

Mike Hein, the vice president and senior loan officer at Liberty Trust and Savings Bank in Durant, said banks are working with farmers to manage any fiscal challenges they may be facing. He said while each farm is different, some examples may be restructuring debt or financing against equipment or real estate.

He said banks also may be making efforts like applying for federal loan assistance.

“We don’t have a panic situation taking place, and I think that’s one of the things that the media needs to be kind of careful with,” Hein said. “Yes, there are some challenges out here. But for the most part they have been manageable to this point.

“Certainly, if these commodity prices stay where they are, it’s going to kind of make these challenges a little bit tougher, and it’s probably going to require some other adjustments.”

Bob Hartwig, an ag specialist with the Iowa Bankers Association, said he thinks most farmers are going to be OK in 2018, especially with the help of a federal financial assistance program approved by the Trump administration to help offset losses suffered by farmers as a result of trade negotiations.

“We have a lot of concerns for 2019 because right now it looks pretty tough,” he said. “We’re hoping some of the tariff deals get negotiated.”

Even the federal assistance likely will come up short of helping many Iowa farmers for myriad reasons. The payments will be decided by this year’s crop alone, so for farmers who have a lower-than-average yield, the payments will not be as helpful. And because the payments can be tied only directly to trade negotiations, they will be of little help to corn growers, though many of them are struggling also.

Hartwig and Hein stressed the need for concerned farmers to remain in contact with their bankers so they know all their options.

“Most ag lenders who have been in this business for a while understand that there are certain times when there are some storms that have to be weathered. I think most Iowa banks, ag banks are going to do everything they can to stick with their people and help them through these more challenging times,” Hein said. “It’s a situation of recognizing that it’s going to require a little extra consideration to make sure people are getting their marketing plans put together and their finances organized.”

State economists said if the trade war drags on and commodity prices remain low, it very well could have a draining impact on Iowa’s overall financial health. It’s not just farmers who would suffer; it’s all the farm-related businesses in manufacturing, insurance and other sectors that also would feel the impact, the experts said.

“When you look at all the other sectors of the Iowa economy, there’s this strong tie back to the agricultural sector,” said Hart, the ISU economist. “It ripples across the rest of the Iowa economy.”